Tag Archives: Personal Loans

Should You Refinance Your Student Loans?

Due to financial consequences of COVID-19 — and the broader impact on our economy — now is an excellent time to consider refinancing most loans you have. This can include mortgage debt you have that may be converted to a new loan with a lower interest rate, as well as auto loans, personal loans, and more.

Refinancing student loans can also make sense if you’re willing to transition student loans you currently have into a new loan with a private lender. Make sure to take time to compare rates to see how you could save money on interest, potentially pay down student loans faster, or even both if you took the steps to refinance.

Get Started and Compare Rates Now

Still, it’s important to keep a close eye on policies and changes from the federal government that have already taken place, as well as changes that might come to fruition in the next weeks or months. Currently, all federal student loans are locked in at a 0% APR and payments are suspended during that time. This change started on March 13, 2020 and lasts for 60 days, so borrowers with federal loans can skip payments and avoid interest charges until the middle of May 2020.

It’s hard to say what will happen after that, but it’s smart to start figuring out your next steps and determining if student loan refinancing makes sense for your situation. Note that, in addition to lower interest rates than you can get with federal student loans, many private student lenders offer signup bonuses as well. With the help of a lower rate and an initial bonus, you could end up far “ahead” by refinancing in a financial sense.

Still, there are definitely some negatives to consider when it comes to refinancing your student loans, and we’ll go over those disadvantages below.

Should You Refinance Now?

Do you have student loan debt at a higher APR than you want to pay?

  • If no: You shouldn’t refinance.
  • If yes: Go to next question.

Do you have good credit or a cosigner? 

  • If no: You shouldn’t refinance.
  • If yes:  Go to next question.

Do you have federal student loans?

  • If no: You can consider refinancing
  • If yes: Go to next question

Are you willing to give up federal protections like deferment, forbearance, and income-driven repayment plans?

  • If no: You shouldn’t refinance
  • If yes: Consider refinancing your loans.

Reasons to Refinance

There are many reasons student borrowers ultimately refinance their student loans, although they can vary from person to person. Here are the main situations where it can make sense to refinance along with the benefits you can expect to receive:

  • Secure a lower monthly payment on your student loans.
    You may want to consider refinancing your student loans if your ultimate goal is reducing your monthly payment so it fits in better with your budget and your goals. A lower interest rate could help you lower your payment each month, but so could extending your repayment timeline.
  • Save money on interest over the long haul.
    If you plan to refinance your loans into a similar repayment timeline with a lower APR, you will definitely save money on interest over the life of your loan.
  • Change up your repayment timeline.
    Most private lenders let you refinance your student loans into a new loan product that lasts 5 to 20 years. If you want to expedite your loan repayment or extend your repayment timeline, private lenders offer that option.
  • Pay down debt faster.
    Also, keep in mind that reducing your interest rate or repayment timeline can help you get out of student loan debt considerably faster. If you’re someone who wants to get out of debt as soon as you can, this is one of the best reasons to refinance with a private lender.

Why You Might Not Want to Refinance Right Now

While the reasons to refinance above are good ones, there are plenty of reasons you may want to pause on your refinancing plans. Here are the most common:

  • You want to wait and see if the federal government will offer 0% APR or forbearance beyond May 2020 due to COVID-19.
    The federal government has only extended forbearance through the middle of May right now, but they might lengthen the timeline of this benefit if you wait it out. Since this perk only applies to federal student loans, you would likely want to keep those loans at 0% APR for as long as the federal government allows.
  • You may want to take advantage of income-driven repayment plans.
    Income-driven repayment plans like Pay As You Earn (PAYE) and Income-Based Repayment let you pay a percentage of your discretionary income each month then have your loans forgiven after 20 to 25 years. These plans only apply to federal student loans, so you shouldn’t refinance with a private lender if you are hoping to sign up.
  • You’re worried you won’t be able to keep up with your student loan payments due to your job or economic conditions.
    Federal student loans come with deferment and forbearance that can buy you time if you’re struggling to make the payments on your student loans. With that in mind, you may not want to give up these protections if you’re unsure about your future and how your finances might be.
  • Your credit score is low and you don’t have a cosigner.
    Finally, you should probably stick with federal student loans if your credit score is poor and you don’t have a cosigner. Federal student loans come with fairly low rates and most don’t require a credit check, so they’re a great deal if your credit is imperfect.

Important Things to Note

Before you move forward with student loan refinancing, there are some details you should know and understand. Here are our top tips and some important factors to keep in mind.

Compare Rates and Loan Terms

Because student loan refinancing is such a competitive industry, shopping around for loans based on their rates and terms can help you find out which lenders are offering the most lucrative refinancing options for someone with your credit profile and income.

We suggest using Credible to shop for student loan refinancing since this loan platform lets you compare offers from multiple lenders in one place. You can even get prequalified for student loan refinancing and “check your rate” without a hard inquiry on your credit score.

Check for Signup Bonuses

Some student loan refinancing companies let you score a bonus of $100 to $750 just for clicking through a specific link to start the process. This money is free money if you’re able to take advantage, and you can still qualify for low rates and fair loan terms that can help you get ahead.

We definitely suggest checking with lenders that offer bonuses provided you can also score the most competitive rates and terms.

Consider Your Personal Eligibility

Also keep your personal eligibility in mind, including factors beyond your credit score. Most applicants who are turned down for student loan refinancing are turned away based on their debt-to-income ratio and not their credit score. Generally speaking, this means they owe too much money on all their debts when you compare their liabilities to their income.

Credible also notes that adding a creditworthy cosigner can improve your chances of prequalifying for a loan. They also state that “many lenders offer cosigner release once borrowers have made a minimum number of on-time payments and can demonstrate they are ready to assume full responsibility for repayment of the loan on their own.”

It’s Not “All or Nothing”

Also, remember that you don’t have to refinance all of your student loans. You can just refinance the loans at the highest interest rates, or any particular loans you believe could benefit from a different repayment term.

4 Steps to Refinance Your Student Loans

Once you’re ready to pull the trigger, there are four simple steps involved in refinancing your student loans.

Step 1: Gather all your loan information.

Before you start the refinancing process, it helps to have all your loan information, including your student loan pay stubs, in one place. This can help you determine the total amount you want to refinance as well as the interest rates and payments you currently have on your loans.

Step 2: Compare lenders and the rates they offer.

From there, take the time to compare lenders in terms of the rates they can offer. You can use this tool to get the process started.

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Step 3: Choose the best loan offer you can qualify for.

Once you’ve filled out basic information, you can choose among multiple loan offers. Make sure to check for signup bonus offers as well as interest rates, loan repayment terms, and interest rates you can qualify for.

Step 4: Complete your loan application.

Once you decide on a lender that offers the best rates and terms, you can move forward with your full student loan refinancing application. Your student loan company will ask for more personal information and details on your existing student loans, which they will combine into your new loan with a new repayment term and monthly payment.

The Bottom Line

Whether it makes sense to refinance your student loans is a huge question that only you can answer after careful thought and consideration. Make sure you weigh all the pros and cons, including what you may be giving up if you’re refinancing federal loans with a private lender.

Refinancing your student loans can make sense if you have a plan to pay them off, but this strategy works best if you create a debt repayment plan you can stick with for the long-term.

The post Should You Refinance Your Student Loans? appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Best Personal Loans For Bad Credit – Getting A Loan With Poor Credit (Credit Score Under 580)

[mu30_js name=”toc” skip= “5 6 8 9 11 12 13 15 16 19 20 21 22”] Poor credit is that status no one wants to be in voluntarily. But sometimes it happens to the best of us. It can be due to pure financial mismanagement, but it can just as easily be the result of […]Getting a loan when you have poor credit can seem impossible, but it can be done, as long as you make sure to make on-time monthly payments.

The post Best Personal Loans For Bad Credit – Getting A Loan With Poor Credit (Credit Score Under 580) appeared first on Money Under 30.

Source: moneyunder30.com

How to Get Approved for Credit in a Financial Downturn

In a recession it’s common for many people to rely on credit cards and loans to balance their finances. It’s the ultimate catch-22 since, during a recession, these financial products can be even harder to qualify for.

This holds true, according to historical data from the Federal Reserve Bank of St. Louis. It found that during the 2007 recession, loan growth at traditional banks decreased and remained deflated over the next four years. 

Credit can be a powerful tool to help you make ends meet and keep moving forward financially. Here’s what you can do if you’re struggling to access credit during a weak economy.

Lending becomes riskier in a weak economy. Does this mean you’re completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.

How Does a Financial Downturn Affect Lending?

Giving someone a loan or approving them for a credit card carries a certain amount of risk for a lender. After all, there’s a chance you could stop making payments and the lender could lose all the funds you borrowed, especially with unsecured loans. 

For lenders, this concept is called, “delinquency”. They’re constantly trying to get their delinquency rate lower; in a booming economy, the delinquency rate at commercial banks is usually under 2%. 

Lending becomes riskier in a weak economy. There are all sorts of reasons a person might stop paying their loan or credit card bills. You might lose your job, or unexpected medical bills might demand more of your budget. Because lenders know the chances of anyone becoming delinquent are much higher in a weak economy, they tend to restrict their lending criteria so they’re only serving the lowest-risk borrowers. That can leave people with poor credit in a tough financial position.

Before approving you for a loan, lenders typically look at criteria such as:

  • Income stability 
  • Debt-to-income ratio
  • Credit score
  • Co-signers, if applicable
  • Down payment size (for loans, like a mortgage)

Does this mean you’re completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.

5 Ways to Help Get Your Credit Application Approved 

Although every lender has different approval criteria, these strategies speak to typical commonalities across most lenders.

1. Pay Off Debt 

Paying off some of your debt might feel bold, but it can be helpful when it comes to an application for credit. Repaying your debt reduces your debt-to-income ratio, typically an important metric lenders look at for loans such as a mortgage. Also, paying off debt could help improve your credit utilization ratio, which is a measure of how much available credit you’re currently using right now. If you’re using most of the credit that’s available to you, that could indicate you don’t have enough cash on hand. 

Not sure what debt-to-income ratio to aim for? The Consumer Financial Protection Bureau suggests keeping yours no higher than 43%. 

2. Find a Cosigner

For those with poor credit, a trusted cosigner can make the difference between getting approved for credit or starting back at square one. 

When someone cosigns for your loan they’ll need to provide information on their income, employment and credit score — as if they were applying for the loan on their own. Ideally, their credit score and income should be higher than yours. This gives your lender enough confidence to write the loan knowing that, if you can’t make your payments, your cosigner is liable for the bill. 

Since your cosigner is legally responsible for your debt, their credit is negatively impacted if you stop making payments. For this reason, many people are wary of cosigning.

In a recession, it might be difficult to find someone with enough financial stability to cosign for you. If you go this route, have a candid conversation with your prospective cosigner in advance about expectations in the worst-case scenario. 

3. Raise Your Credit Score 

If your credit score just isn’t high enough to qualify for conventional credit you could take some time to focus on improving it. Raising your credit score might sound daunting, but it’s definitely possible. 

Here are some strategies you can pursue:

  • Report your rent payments. Rent payments aren’t typically included as part of the equation when calculating your credit score, but they can be. Some companies, like Rental Kharma, will report your timely rent payments to credit reporting agencies. Showing a history of positive payment can help improve your credit score. 
  • Make sure your credit report is updated. It’s not uncommon for your credit report to have mistakes in it that can artificially deflate your credit score. Request a free copy of your credit report every year, which you can do online through Experian Free Credit Report. If you find inaccuracies, disputing them could help improve your credit score. 
  • Bring all of your payments current. If you’ve fallen behind on any payments, bringing everything current is an important part of improving your credit score. If your lender or credit card company is reporting late payments a long history of this can damage your credit score. When possible speak to your creditor to work out a solution, before you anticipate being late on a payment.
  • Use a credit repair agency. If tackling your credit score is overwhelming you could opt to work with a reputable credit repair agency to help you get back on track. Be sure to compare credit repair agencies before moving forward with one. Companies that offer a free consultation and have a strong track record are ideal to work with.

Raising your credit isn’t an immediate solution — it’s not going to help you get a loan or qualify for a credit card tomorrow. However, making these changes now can start to add up over time. 

4. Find an Online Lender or Credit Union

Although traditional banks can be strict with their lending policies, some smaller lenders or credit unions offer some flexibility. For example, credit unions are authorized to provide Payday Loan Alternatives (PALs). These are small-dollar, short-term loans available to borrowers who’ve been a member of qualifying credit unions for at least a month.

Some online lenders might also have more relaxed criteria for writing loans in a weak economy. However, you should remember that if you have bad credit you’re likely considered a riskier applicant, which means a higher interest rate. Before signing for a line of credit, compare several lenders on the basis of your quoted APR — which includes any fees like an origination fee, your loan’s term, and any additional fees, such as late fees. 

5. Increase Your Down Payment

If you’re trying to apply for a mortgage or auto loan, increasing your down payment could help if you’re having a tough time getting approved. 

When you increase your down payment, you essentially decrease the size of your loan, and lower the lender’s risk. If you don’t have enough cash on hand to increase your down payment, this might mean opting for a less expensive car or home so that the lump sum down payment that you have covers a greater proportion of the purchase cost. 

Loans vs. Credit Cards: Differences in Credit Approval

Not all types of credit are created equal. Personal loans are considered installment credit and are repaid in fixed payments over a set period of time. Credit cards are considered revolving credit, you can keep borrowing to your approved limit as long as you make your minimum payments. 

When it comes to credit approvals, one benefit loans have over credit cards is that you might be able to get a secured loan. A secured loan means the lender has some piece of collateral they can recover from you should you stop making payments. 

The collateral could be your home, car or other valuable asset, like jewelry or equipment. Having that security might give the lender more flexibility in some situations because they know that, in the worst case scenario, they could sell the collateral item to recover their loss. 

The Bottom Line

Borrowing during a financial downturn can be difficult and it might not always be the answer to your situation. Adding to your debt load in a weak economy is a risk. For example, you could unexpectedly lose your job and not be able to pay your bills. Having an added monthly debt payment in your budget can add another challenge to your financial situation.

However, if you can afford to borrow funds during an economic recession, reduced interest rates in these situations can lessen the overall cost of borrowing.

These tips can help tidy your finances so you’re a more attractive borrower to lenders. There’s no guarantee your application will be accepted, but improving your finances now gives you a greater borrowing advantage in the future.

The post How to Get Approved for Credit in a Financial Downturn appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Tips for Building Your Credit

A woman wearing a brown coat and scarf smiles as she throws fall leaves around herself

Your credit
score can affect many aspects of your life—from getting a loan to getting a
job or getting a house. Good credit is necessary for sound finances and many
major purchases. But there are no quick fixes or shortcuts to building good
credit. You must start by establishing credit, then embrace responsible credit
habits over time. This helps you create a record that shows lenders you’re a
low risk and a desirable customer.

The following tips for building your credit help you understand and improve on the key factors that the three major credit bureaus use to calculate your credit score. By following these smart financial guidelines, you can demonstrate your credit worthiness. That makes you a more desirable customer and borrower for many businesses and lenders.


1. Review Your Credit Report

In order to build your credit, you have to understand it. Start by regularly reviewing your credit reports. You can request your free annual credit report from each of the three credit bureaus and assess your credit as it stands right now. Review the following:

  1. Payment history
  2. Amount of credit you’re using
  3. Credit age
  4. Mix of credit account types
  5. Credit inquiries

Our free Credit Report Card can help you understand what is in your credit report and how those things affect your credit score. Our report card will help you identify areas that need improvement and help you make a plan to address these issues.

2. Dispute Errors and Inaccuracies

As you review your reports, keep an eye out for any errors. Credit report errors are not uncommon. In fact, a Fair Credit Reporting study found that one in four consumers found mistakes on their reports that can hurt their scores. You have the right to dispute those errors and fix your credit report. You can do credit repair on your own or hire a credit repair company to help you.

3. Keep Credit Accounts Open and In Good Standing

If you already have available credit, keep the accounts
open. Older credit accounts help assign a credit
age, which makes up 15% of your score. Closing an old account makes it look
like you didn’t start establishing credit until later, which can lower your
credit score.

And if you close a credit card, you also lose valuable
available credit for your utilization rate. It may be better to keep the card
open to support a lower debt-to-credit ratio—just don’t run up the balance.
Make small purchases two to three times per year and pay them off during the
following billing cycle.

4. Make On-Time Payments

Making on-time payments is one of the most important
things you can do to build your credit. Your payment
history accounts for 35% of your credit score. It tells lenders and
potential employers how reliable you are. Missed payments are serious signs of
trouble. Charge offs and defaulted accounts say you can’t be trusted to repay
your debts as promised.

If you are newly establishing credit, avoid late payments
and other poor payment habits. This is one of the two most impactful factors
for building good credit. If you already have a poor payment history, commit to
changing now. Over time, those old payments will have less impact. Eventually,
they’ll even fall off your report.

5. Use a Maximum of 30% of the Credit Available to You

Ironically, lenders would rather not give you credit if
it looks like you need it or you like using it too much. That may seem
counterproductive, since they make their money off loan interest and fees. But
using too much of your available credit is a warning sign.

Maxing out your cards and lines of credit may point to
problems with spending, debt and income. That worries creditors, since it means
you may stop paying your loans. That’s why your utilization rate is a vital
part of your credit score—accounting for 30% of the calculation in most scoring
models.

The most
desirable utilization rate is less than 10% of your available credit. At
most, keep it under 30%. If you make any large purchases on your revolving
credit accounts, pay them off as quickly as possible to keep your utilization
rate low.

6. Open Different Types of Credit Accounts

Having a mix of credit types is a good demonstration of
creditworthiness. This factor contributes 10% to your credit score. There are three
types of credit accounts to consider:

  1. Revolving accounts—credit cards and lines of credit. They have a credit limit and require regular payments.
  2. Installment accounts—student loans, car loans, mortgages and personal loans. The lender provides a lump sum, and you make payments until the debt is paid off.
  3. Open credit—charge cards, utilities and cellphone services. With charge cards, you have a credit limit, and you can make purchases and cash advances, but you don’t carry a balance. With open credit accounts, you need to pay off your charges each month.

To build credit, work toward maintaining an account
from each of these categories—as long as you can afford them.

7. Open a Secured Line of Credit

It may be difficult to build credit if you haven’t
established a credit history yet. If you have poor or fair credit, it may also
be hard to get approval for traditional credit cards or loans. However, secured
lines of credit—like secured
credit cards and secured
personal loans—can help you get started on your path to good credit.

OpenSky® Secured Visa® Credit Card

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on Capital Bank’s secure website

Card Details
Intro Apr:
N/A


Ongoing Apr:
17.39% (variable)


Balance Transfer:
N/A


Annual Fee:
$35


Credit Needed:
Fair-Poor-Bad-No Credit

Snapshot of Card Features
  • No credit check necessary to apply. OpenSky believes in giving an opportunity to everyone.
  • The refundable* deposit you provide becomes your credit line limit on your Visa card. Choose it yourself, from as low as $200.
  • Build credit quickly. OpenSky reports to all 3 major credit bureaus.
  • 99% of our customers who started without a credit score earned a credit score record with the credit bureaus in as little as 6 months.
  • We have a Facebook community of people just like you; there is a forum for shared experiences, and insights from others on our Facebook Fan page. (Search “OpenSky Card” in Facebook.)
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Card Details +

To get a secure line of credit, you will need to put up
some form of collateral—usually cash, a savings account, or other personal
property. With this credit option, you may get a decent interest rate. The
lender’s risk is lowered due to your secured asset. This means they don’t need
to charge a much higher interest rate, as is common with poor credit.

8. Limit Credit Inquiries

Be careful when applying for new credit. You don’t want
more than two hard
inquiries every six months or so. Too many requests for credit can look bad
to potential lenders. These inquiries account for 10% of your score. Only apply
for credit if it can help improve your score through one of the methods
discussed above or is necessary for making a large purchase such as a home or
car.

When you do apply, comparison shop. Carefully weigh all
the terms and the chances that you will qualify for the card or loan on offer.
Then, choose only one or two and apply. If you’re turned down, don’t try again
for at least six months.

Build Your Credit

These personal tips can help you build credit and work on improving poor or fair credit. Building good credit habits can have a bit impact on your credit score. Start by signing up for Credit.com’s free Credit Report Card to get personalized advice for your unique credit situation.

Sign up for the Free Credit Report Card.

The post Tips for Building Your Credit appeared first on Credit.com.

Source: credit.com

Here are Safer Alternatives if You’re Too Obsessed with the Stock Market

Some of the links in this post are from our sponsors. We provide you with accurate, reliable information. Learn more about how we make money and select our advertising partners.

We’re big on investing. It’s an important way to grow your money and set yourself up for retirement someday.

But is it dangerous to be too obsessed with the stock market?

You bet it is. Our financial advice columnist, Dear Penny, recently heard from a reader whose husband stopped funding his 401(k) so he can bet on the stock market, instead.

Is it OK that he’s stopped contributing to his 401(k) so he can trade stocks? the reader asked. How do I ask him what he’s actually investing in? I’m worried that he’s gambling money that we need for our retirement.

That’s not the way to go. Here are five safer ways to invest and grow your money.

1. Just Steadily Invest Like a Normal Person

Instead of betting all your money on the stock market, just steadily invest in it. Take the long view. The stock market is unpredictable, which means that sometimes stock prices go up, and sometimes they go down — but over time, they tend to go up.

If you haven’t started investing and have some money to spare, you can start small. Investing doesn’t require you throwing thousands of dollars at full shares of stocks. In fact, you can get started with as little as $1.*

We like Stash, because it lets you choose from hundreds of stocks and funds to build your own investment portfolio. But it makes it simple by breaking them down into categories based on your personal goals. Want to invest conservatively right now? Totally get it! Want to dip in with moderate or aggressive risk? Do what you feel.

Plus, with Stash, you’re able to invest in fractions of shares, which means you can invest in funds you wouldn’t normally be able to afford.

If you sign up now (it takes two minutes), Stash will give you $5 after you add $5 to your invest account. Subscription plans start at $1 a month.**

2. Grow Your Money 16x Faster — Without Risking Any of It

Save some of your money in a safer place than the stock market — but where you’ll still earn money on it.

Under your mattress or in a safe will get you nothing. And a typical savings account won’t do you much better. (Ahem, 0.06% is nothing these days.)

But a debit card called Aspiration lets you earn up to 5% cash back and up to 16 times the average interest on the money in your account.

Not too shabby!

Enter your email address here to get a free Aspiration Spend and Save account. After you confirm your email, securely link your bank account so they can start helping you get extra cash. Your money is FDIC insured and they use a military-grade encryption which is nerd talk for “this is totally safe.”

3. Stop Paying Your Credit Card Company

One way to make sure you have more money is to stop wasting money on credit card interest. Your credit card company is getting rich by ripping you off with high interest rates. But a website called AmOne wants to help.

If you owe your credit card companies $50,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.

The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), you’ll get out of debt that much faster. Plus: No credit card payment this month.

AmOne keeps your information confidential and secure, which is probably why after 20 years in business, it still has an A+ rating with the Better Business Bureau.

It takes two minutes to see if you qualify for up to $50,000 online. You do need to give AmOne a real phone number in order to qualify, but don’t worry — they won’t spam you with phone calls.

4. Cut Your Bills by $540/Year

Another way to grow your money: Stop overpaying on your bills.

For example, when’s the last time you checked car insurance prices? You should shop your options every six months or so — it could save you some serious money. Let’s be real, though. It’s probably not the first thing you think about when you wake up. But it doesn’t have to be.

A website called Insure makes it super easy to compare car insurance prices. All you have to do is enter your ZIP code and your age, and it’ll show you your options — and even discounts in your area.

Using Insure, people have saved an average of $540 a year.

Yup. That could be $500 back in your pocket just for taking a few minutes to look at your options.

5. Add $225 to Your Wallet Just for Watching the News

Here’s a safe way to earn a little cash on the side.

We’re living in historic times, and we’re all constantly refreshing for the latest news updates. You probably know more than one news-junkie who fancies themselves an expert in respiratory illness or a political mastermind.

And research companies want to pay you to keep watching. You could add up to $225 a month to your pocket by signing up for a free account with InboxDollars. They’ll present you with short news clips to choose from every day, then ask you a few questions about them.

You just have to answer honestly, and InboxDollars will continue to pay you every month. This might sound too good to be true, but it’s already paid its users more than $56 million.

It takes about one minute to sign up, and start getting paid to watch the news.

Mike Brassfield (mike@thepennyhoarder.com) is a senior writer at The Penny Hoarder. He tries not to be obsessed with the stock market.

*For Securities priced over $1,000, purchase of fractional shares starts at $0.05.

**You’ll also bear the standard fees and expenses reflected in the pricing of the ETFs in your account, plus fees for various ancillary services charged by Stash and the custodian.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

How to Consolidate Credit Card Debt

Credit card debt is on the rise. Millions of Americans are in over their heads. They’re losing sleep, losing control, and worried about what the future will hold. But there are solutions, and consolidation is one of the best.

Consolidation works by “consolidating” multiple debts into one. It’s the perfect solution for mounting debt, one that doesn’t destroy your credit score, liquidate your assets, or make it difficult to acquire mortgages and personal loans in the future.

With that said, let’s look at some of the best ways to consolidate credit card debt.

Option 1: Do It Yourself

The idea of debt consolidation essentially boils down to acquiring a large, low-interest loan and using that to repay multiple high-interest debts. If your credit score is high enough, you can get that loan yourself, clear your credit card debts, and then focus on repaying the loan.

Do It Yourself Consolidation Explained

The average credit card APR is close to 20%. If you have a balance of $10,000 and a monthly payment of $300, this APR will cost you over $4,700 in total interest and your debt will be repaid in just over 4 years. If you were to acquire a $10,000 personal loan at a respectable rate of 8% over the same 4 years, you’ll pay just under $1,800 in interest.

That’s a saving of nearly $3,000 over 4 years, and it’s based on an 8% rate (lower rates are available) and on the assumption that you don’t accumulate any credit card penalty fees or penalty APRs, which are very common on rolling balances.

Pros

  • You Will Save Money: As noted above, this process could save you a lot of money over the long-term and will also free up some additional cash in the short-term.
  • Complete Control: You don’t have to worry about company fees and service charges; you don’t need to concern yourself with hidden terms. With this credit card consolidation option, you are in complete control.
  • Easy on Your Credit Score: While your credit score will take an initial hit because of the loan inquiry and the new account, as soon as you use that loan to clear your credit card debts you should see an improvement. Just remember to keep those cleared cards active, otherwise, your credit utilization ratio will drop.

Cons

  • Good Credit Needed: For this option to be viable, you will need an excellent score. Anything less and you may struggle to be accepted for a low-interest loan. Let’s be honest, if you’re struggling with growing credit card debt, the odds of you having a flawless credit score are pretty slim.
  • On Your Own: While there are benefits to doing everything by yourself, it can also be a little time consuming, and if you don’t know what you’re doing, it can be intimidating.

Option 2: Work with a Debt Management Company

Credit counseling agencies can help you manage your debt by working with your creditors. A new payment structure will be created, and your money will go straight to the agency, after which it will be released to your creditors.

Debt Management Consolidation Explained

To begin the process, search for reputable debt management services in your area. They will assess your situation and determine if you are a good fit for the program. Some charge fees, some don’t, but all will serve as an intermediary between you and your creditors.

Every month you will make a single payment and the money will then go to your creditors. The agency will negotiate reduced payments by bringing the interest rates down and removing fees, therefore making these debts cheaper and more manageable.

Pros 

  • Professional Help: Get quality support from an experienced debt management company, one that will assume control and take the stress away.
  • Cheap: This is one of the cheapest and most cost-effective ways to clear your credit card debt, greatly reducing your total interest repayments.

Cons

  • Fees: Some debt management companies charge fees for their services, although these tend to be nominal and you’ll still save more money in the long-term.
  • Canceled Contract: If you fail to make one of the agreed-upon repayments, your creditors may cancel the improved contract and revert back to the previous terms, erasing all the agency’s hard work.

Option 3: Balance Transfer

A balance transfer is a promotion offered on new credit cards. It invites you to move your balance from your current card to a new one, and in exchange, it offers a period of 0% interest. 

You will need to pay a balance transfer fee, and this is typically charged at between 3 and 5% of the total transfer amount, but it’s often one of the cheapest and easiest ways to consolidate credit card debt.

Balance Transfer Consolidation Explained

As an example of how balance transfers work, let’s imagine that you have three credit cards, each with a maxed-out balance of $10,000 and an APR of 20%. If you’re repaying $300 a month, that’s $900 a month and in 4 years and 2 months, you’ll pay around $14,000 in interest to clear the full $30,000.

Alternatively, you can move all three balances onto a single balance transfer card with a $30,000 limit. Immediately, that balance could grow to $31,500. If you continue paying $900 a month and the balance transfer period lasts for 18 months, the balance will be just $15,300 when interest begins to accrue again. And if you use that 18-month period to initiate a debt repayment strategy, you could clear it in full and avoid paying any interest.

Pros 

  • Multiple Balances Can be Consolidated: You can consolidate multiple credit card balances, providing you’re not moving them to the same creditor.
  • No Interest Repayment: If you plan it properly, you can repay your balance in full before accruing any interest.
  • Available to Everyone: Credit cards are generally easier to acquire than low-interest personal loans and you won’t need an excellent credit score to get a good one.

Cons  

  • Higher Interest: The interest rate and fees may be higher once the 0% balance transfer period ends. If you use the intro period to avoid repayments and not to clear your debt, you could find yourself in serious trouble when interest begins to accumulate again.
  • Large Limits May be Difficult: The bigger your current credit card balances are, the harder it will be to get a balance transfer card with a large enough limit.
  • Fees: Although it’s a great option for consolidating credit card debt, it’s not completely free, as you’ll pay an initial balance transfer fee.

Option 4: Debt Consolidation Loans

Some companies offer specific loans tailored toward debt consolidation. These options work a lot like personal loans, as they are large loans designed with consolidation in mind. However, there are a few key differences, including the fact you don’t need an excellent credit score.

Debt Consolidation Loans Explained

The ultimate goal of debt consolidation loans is not to save you money in the long-term or to reduce the debt period. In fact, it does the opposite. The goal is to reduce your monthly payment and give you a smaller rate of interest, but it does this while increasing the loan period, which means you ultimately pay more money over the term.

Pros

 

  • More Money Every Month: Your monthly payments will be reduced, freeing up some extra cash to use every month.
  • Cleared Debts: Your credit card debts will be cleared in one fell swoop, potentially giving you some financial breathing space.

 

Cons

  • Longer Period: The total length of your debt will be extended, which means you’ll be stuck with the debt for a prolonged period.
  • Cost: While you’ll save some money every month, you’ll do so at the cost of an increased overall balance. Depending on your credit score, you could find yourself paying thousands more in total repayments.

Other Credit Card Debt Consolidation Solutions

If you have a supportive and financially-free family, you can ask them for the money to clear your debts and then promise to repay them in time. 

Of course, this option isn’t without its problems. Firstly, there’s the old adage that you should never lend money to friends or family. It may seem pretty heartless, but it’s a saying steeped in experience. It causes problems, as that debt is right at the bottom of the borrower’s list of priorities and if they’re skipping payments and begging for relief, while at the same time buying new clothes and going out every night, it can anger the borrower.

To avoid these issues, agree to pay them in monthly installments, offer a little interest, and get everything in writing. Make that debt your priority, because by skipping your payments you’ll be hurting your finances and your relationships.

Don’t guilt-trip a friend or family member into lending you money. Don’t ask them unless you have a very close relationship with them, have known them a long time, and know they can easily afford to lend you money. The last thing you want is for them to leave themselves short or to acquire debt just to help you out.

Alternatively, if you own a significant amount of home equity, you can opt for a home equity loan. This will give you a sizeable loan charged at a small rate of interest. It will take longer to repay your mortgage, but by reducing your debt demands you’ll save more money in the long-term.

How to Consolidate Credit Card Debt is a post from Pocket Your Dollars.

Source: pocketyourdollars.com